Wednesday, March 2, 2011

Budget Analysis

Revenue Budget

v Tax Revenue for FY 11 (RE) was at 5,63,685 crore, up 5.5% from the BE for FY 11, and 21 % growth from FY 10

v Non Tax revenue for FY 11 (RE) was 2,20,148, up 48.6% from BE FY11 and 96% growth from FY10

v Total revenue Receipt for FY 11 (RE) was 7,83,833 crore, up 15% from BE FY11, and 36% growth from FY10

v Share of Non Tax Revenue has increased to 28% in FY11 (RE), from 19% in FY10 and 17% in FY09 ( in revenue Receipt)

v Capital receipts for FY11 (RE) at 4,32,743 crore, up 1.5% from BE FY11 and down 2.59% from FY10

v Other receipts in the Capital account apart from recoveries of Loan and borrowing declined 12% from FY 10 and 43% from BE FY11

v The decline in other receipt is financed by rise in borrowing which stood at 4, 00,998 crore in FY11 (RE) up 5.1% from BE FY11. While compared to FY10 it fell 3.15%.

v The share of borrowing has fallen from 98% in FY9, to 93% in FY10 and 92% in FY11 (RE)

Expenditure Budget

v Total Planned expenditure increased 5.88% in FY11 compared to budget estimates and 25% from FY10. Non Plan Expenditure increased 11.68% from BE and 16.3% from FY10

v Total Expenditure rose 9.72% from estimates and 19% from FY10

v Plan to non plan expenditure ratio is 0.48 in FY11, up from 0.44 in FY10 and 0.45 in FY09


v Fiscal Deficit came down 5.1% GDP in FY11 RE from 5.5% in FY10 and 6.7% in FY09

v Revenue receipt, Capital receipt apart from Borrowing as a percentage total expenditure has improved to 67% from 59% in FY10 and 62% in FY09.

v Revenue receipt, Capital receipt apart from Borrowing has grown 34% in FY 11, 11% in FY10 while expenditure has grown 19% and 15% respectively.

Major Impact is from rise in Non Tax and buoyant Tax revenue last year which has pushed the Fiscal deficit down by 0.4%

Budget Estimates for FY12 Government (Economy to grow 9%)

v Tax revenue collection to rise by 17.9% from FY11 RE, Non Tax revenue to decline by 43% from FY11 collection

v Capital Receipt to rise by 8.1% with borrowing to rise by 2.9% which contributes over 90% of capital receipt. Items like recoveries of loan and other receipt in capital account to increase by 66% and 75%.

v Total Expenditure is expected to rise by 3.4% with 11.8% rise in planned expenditure. Non-plan expenditure to decline by 0.7%.

v Fiscal deficit to decline 4.6% of GDP from 5.1% in FY11 RE.

Review of Budget Estimates FY12

The major trust for reducing fiscal deficit is given to tax revenue and decline in non plan expenditure. While the major question is whether it is possible to see such a rise in Tax revenue and as well as non planned expenditure?

A From the expenditure side, it is a tight budget, however depends how it shapes in reality. Last year, the deviation from Budget Estimate to Revised Estimates is almost 9.7% from total expenditure side with non-plan expenditure deviated by almost 13%.

The non-plan expenditure on subsidies for the next fiscal is projected at Rs 1, 43,570 crore, which is over 102% more than the expenditure of Rs 70,926 crore during 2007-08.

The non-plan expenditure on subsidy has been constantly showing an upward trend. The greatest share of subsidy allocation is for the three segments -- food, fertilizer and petroleum. Thus petroleum products saw the biggest jump in subsidies during the four year period, while food subsidy bill has almost doubled. The projected subsidy for food in 2011-12 is Rs 60,573 crore, for fertilizer and petroleum it is Rs 49,998 crore and Rs 23,640 crore, respectively.

The rise in subsidy bill on account of rise in food and fuel inflation is a concern for the fiscal management which looks the fiscal deficit figure slightly optimistic. The fiscal deficit expected by government for FY12 is 4, 12,817 crore.

B The recent drive up in demand is more credit based. Non-food credit growth was up 24% from a year ago at the end of December 2010. The overall credit to GDP ratio rose to about 55%, continuing its upward progression. However deposit growth saw a slowdown, due to depressed real interest rates, clocking only a 15% growth. This unsustainable scenario caused a sharp increase in the credit to deposit ratio from 72% at the end of FY10 to 76% in mid-December 2010. The softening of credit growth may impact the recent growth story.

Apart from that, the figures depend on the developments on the macro-economic events of other economics. The world economy is now consolidating after a modest recovery. Chinese asset bubble, easy monetary policy in the US, EU public debt problem along with the geo-political problem in the MENA region (Middle East and North Africa Region) are few concerns for a 9% GDP growth in FY12.

Owing to present situation, it is a tight budget, but achieving a fiscal deficit of 4.6% seems too optimistic. This result possibility of rise in borrowing, compared to budget estimates

Key things for further discussion

v Tax Reform- Introduction of GST has not been discussed

v Foreign Direct Investment - India is estimates to attract $27.6 billion in FDI inflows in FY11, down from $35.6 billion in the previous year. The major surplus in the capital account is due to FII inflows. Volatility in FII flows may impact the financial sector of the economy severely.

Note: BE- Budget Estimate, RE- Revised Estimate